Tax for NRIs on gifts of money and property from resident Indians received through gift deeds

Tax for NRIs on gifts of money and property from resident Indians received through gift deeds

Gifts in India are taxable under the Income Tax Act. Gift can be in cash or kind (moveable or immoveable property and other assets specified under the Act). A resident Indian can make a gift to an NRI through a gift deed, but there is a claim on gifts received by NRI.

NRIs are taxed for income that arises in India or is received or accrued in India or deemed to have arisen, received, or accrued in India.

A gift to an NRI by the way of gift deed from a relative is not income and thus not chargeable to tax. Gifts in excess of Rs 50,000/- are subject to tax if gifted by a non- relative. There are certain other exemptions. No tax is payable if a gift is given in contemplation of the recipient’s marriage, death of the donor, or under a Will or inheritance.

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Gift by Remittance

In case of a gift by remittance from a resident Indian, it was not taxed as the transaction is completed in a foreign country bank account where the NRI receives the money. This income is neither received in India nor accrued in India, therefore, not liable for taxation. The gift of money made to NRI was not charged for tax. There is no claim on such gifts received by NRI.

Under the scheme called Liberalized Remittance Scheme (LRS), a resident Indian can remit amount up to $250,000 a year for various purposes like gift, donation, maintenance of close relatives, etc.

Loopholes in Gift Deed

A resident can remit to an NRI even if he is not a relative. And there is no claim on such gifts received by an NRI through gift deed. Taking advantage of the same, many rich people in India used to transfer by way of gift a considerable amount of money to NRIs and avoid tax on their taxable income.

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Now there is an amendment in the rule. It says that the sum of money received by a person outside India from a resident, without any consideration, is deemed to accrue or arise in India. Thus, the gift of money received by a person outside India by way of remittance from a resident would be taxable in India. But if the donor is a relative, remittance is not taxable i.e., no claim on this gift received by NRI if he is a relative of donor.

The amendment is only for the gift of money and not property. Accordingly, if the property situated in India is transferred to an NRI by way of gift through a gift deed, tax is payable by NRI if the value of such a gift is more than Rs 50,000/-.

Gift Taxation Rules

A person outside India means a non-resident or a foreign company. All the money transfers without any consideration on or after July 5, 2019, will be treated as taxable from FY 2019-20.

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Thus for Gift taxation purposes, the place where the gift originated becomes significant rather than the destination.

An NRI has to file his income tax return in India and disclose his income from all the Gifts received. NRIs are now included as income tax assesses and liable for a claim on the gifts received by them through a gift deed.

However, if India has signed a double taxation avoidance treaty with the country of the recipient, the relevant clause will apply. In such a case, the tax may not be payable.

As a top lawfirm in India, we offers a wide array of services to individuals as well as organizations in matters of taxation in India. All the tax issues faced by NRIs are handled by our premier legal management firm.

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Transfer by Gift deed is not taxable

Transfer by Gift deed is not taxable

Gifts transactions are not taxable in the hands of the donor. For a donee, the gift deed transfer is taxable, but there are exceptions. 

Gifts are prevalent among family members or close relatives. It is one way of expressing love and affection. People also make gifts to save taxes as some of the Gift transactions are fully exempted from taxation.

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A person may gift any of the following:

A person may be an individual, HUF or an artificial juridical person like a company/firm. 

In India, we had a Gift Tax Act under which tax was levied on the gift. The donor had to pay the tax. But the said legislation was abolished. Now a provision has been made in the Indian Income Tax Act 1961, for taxing the gift transactions. The recipient of the gift has to pay tax. 

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The gift transaction is tax-free under certain circumstances: 

Gift of Cash:

If the aggregate value of the cash received in gift exceeds Rs 50,000 in a financial year, the recipient has to pay the tax on the amount received. The said amount is counted as his income under the head Income from other sources.

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Gift of property:

  • The gift deed of immovable property has to be registered. The stamp duty is paid at the time of registration based on the market value of the property. The stamp duty payable differs from state to state.
  • If the property is received as a gift without consideration, the recipient pays the tax if the stamp duty value of the property exceeds Rs 50,000/-.
  • If the property is received without adequate consideration, the recipient pays the tax if the stamp duty value exceeds consideration amount by Rs 50,000/-. 
  • In the case of moveable property like shares, jewellery, etc., the recipient pays the tax if the fair market value of the property exceeds Rs 50,000/-.

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Some gifts are tax-free:

  • Any amount of gift if received from the relatives as defined in the Income Tax Act. A relative is specified in the Act and can be the spouse, sibling, sibling of the spouse, sibling of either parent, etc.
  • For NRIs and PIOs, the rules of FEMA will also apply. The definition of relatives is narrower under FEMA. For NRIs as a recipient, rules of remittance have to be kept in mind. The resident Indian who wants to gift an amount to an NRI, the said amount cannot exceed the permissible limits of remittance. 
  • Gift received on the occasion of marriage.
  • Gift received under Will or inheritance
  • Gift on the contemplation of death of the donor
  • Gifts received from any fund, foundation, medical institution, educational institution or university, or any charitable or religious trust. Gifts received from any person by the said institutions are also exempted. Such foundation, institution etc. must be registered under the Income Tax Act.

A person can use provisions relating to gifts for tax planning. These are certainly not meant for evading taxes. 

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Useful Tips to Transfer a Property

Useful Tips to Transfer a Property

When we transfer a property, one thing we need to ensure is that the act of transfer is complete. The legal formalities are fulfilled, and the rights and interests are transferred as desired.

Transfer of property 

It is an act by which one person transfers the rights and interests in a property to another. There is a change in ownership. It is done by executing a conveyance deed which may be in the form of:

  • Sale deed
  • Gift
  • Relinquishment deed
  • Will

Each conveyance deed has some legal requirements. It is valid only if the stipulated conditions are fulfilled.

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The decision to transfer a property needs to be taken prudently, keeping in mind the following tips: 

 Legal Assistance:  

The transfer of ownership involves precise documentation and payment of stamp duty/registration charges. All the documentation part must be handled cautiously. It is advised to take the assistance of legal professionals to avoid issues later. 

Registration of deed:

The registration of transfer deed can be optional or mandatory as per law. If it is compulsory, the deed is valid only if registered. The process of registration helps to:

  • Create evidence of ownership
  • Records the transaction for future references

The registered document of transfer is like a title deed and reflects the ownership.  

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Contents of the deed:

The transferor can transfer all the rights or limited rights in the property. The contents of the transfer deed are, therefore, significant. They define the extent and scope of the transfer. 

Market Value of the property:

Let the professionals assess the correct market value of the property. It helps to get the right price for the property in case of sale. The sale price of the property is the primary factor to decide the stamp duty charges. 

Right of the transferor:

The transferee must ensure that the transferor has the right to transfer the property. It is essential if the owner himself is not present to execute the deed. If the transfer is through the power of Attorney, the authority should be clear and unambiguous. 

In case of Joint ownership of the property, it is significant to understand the rights of the co-owners. A co-owner generally executes a relinquishment deed to give up the share. The other co-owners get a right to that share in the property.

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Payment of dues:

The deed must mention whether the transferor or the transferee will pay the dues of the property. All the taxes must necessarily be paid to avoid any legal trouble. 

The motive of the transfer:

The transfer deed is executed as per the purpose of the transfer. A gift deed is executed if the property needs to be transferred to relative out of love and affection. If the property is desired to be transferred as per preferences, executing a Will is the option. The sale deed is a common method to transfer property, but it involves tax payment.

Thus, to transfer property, one must decide wisely after analyzing all available options.

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Gift Deed- Implications, Interpretations and Information

Gift deed Information, Implications and Interpretations

Can parents take back the property gifted to their children?

Let’s skip the mystery and come straight to the point! 

The answer is – YES

 Parents can indeed take back the property they have gifted to their children. 

Remember:

  • All Gift transactions come under the purview of the Transfer of Property Act. Under this law, a valid gift once made and accepted, is irrevocable.
  • However, one can challenge a gift deed if any of the elements vitiating the contract is present like undue influence, coercion or fraud. 
  • By its inherent nature, Law is dynamic and changes with change in the social milieu and other politico-cultural factors.

With a rapidly shifting society and apparent differences in the value system in human relationships, the question of parents being able to take back gifted property often arises. 

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Family spaces have gradually moved from being Joint Family setups to nuclear ones. Children move out of family environs to build their career and independent lives. 

There is an ethos of continuity, lineage and life security that motivates parents to gift property to their children. Normally one would expect the same to be reciprocated – meaning thereby, that children take care of their parents when the latter reach seniority. Unfortunately, there are increasing cases of children mistreating their parents once the property is transferred in their names.

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Moreover, in India, the governmental support system for the elderly is still not very strong. 

  • Given the frequent cases of the abuse or ill-treatment of the elderly, Indian Law has provided a right to the parents to take back their gifted property from the children.
  • This right has been recognized in the ‘Maintenance and Welfare of Parents and Senior Citizens Act, 2007’.
  • It is social welfare legislation meant for care and well being of the older adults.
  • It protects the rights of the elderly and has made it a legal obligation of the children to look after their parents. 

Section 23 of the Act, as mentioned above, allows the cancellation of a gift deed by the parents. When a gift is made to the legal heir/child by the senior citizen upon a condition that the receiver will take care of the basic needs of the donor, but the receiver fails to fulfil the same; the gift can be cancelled. The condition can be expressed or implied.

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If a child fails to fulfil such a condition it would be considered as an exercise of fraud, undue influence or coercion in the gift transaction, depending upon the facts of the case. The donor can challenge the gift deed and seek annulment of the same. 

This provision assists the elderly persons who have made the gift of the property after coming into force of the Maintenance Act and want to cancel the gift deed later.

Parents gift a property to their children with an understanding that the donor (parent) would be taken care of after transfer of the property. But if the donee (child) is not fulfilling his obligation under the contract of the gift, the same can be cancelled.

CAN A GIFT DEED BE CHALLENGED IN INDIA

CAN A GIFT DEED BE CHALLENGED IN INDIA

Yes. A Gift deed being an instrument for transferring the rights in the property can be challenged in India.

Gift:                A gift is a gratuitous transfer of property by a donor to a donee voluntarily.

Gift Deed:     A legal document describing the transfer of property. A gift deed is an agreement between the two parties (donor and donee) for transfer of right in the property.

Essentials to make a gift valid:

  • Property: The property to be gifted can be moveable or immovable. It must be an existing property. Future property cannot be transferred
  • Acceptance of gift: The gift has to be accepted by the donee or on his behalf. If the gift is not accepted during the lifetime of the donor, it is invalid. If the donee dies without accepting the gift, it becomes void.
  • Parties must be competent to contract: Donor has to be a person capable of making a contract.  A minor cannot be a donor. However, a minor can be a donee. In such a case, the gift has to be accepted by a guardian on his behalf.
  • Consideration:  There is no consideration in gift. There can be a conditional gift such that the condition is not based on donor’s will or pleasure. The conditional gifts are incomplete until conditions are complied with. 
  • Voluntarily: Gift has to be made with free consent. Free consent implies the absence of :
  • Fraud
  • Coercion
  • Misrepresentation
  • Undue influence
  • Registration: A gift deed made for transferring immovable property has to be registered compulsorily as per The Registration Act, 1908.  The gift deed has to be signed by the parties and attested by two witnesses.

When we gift any moveable property, gift deed is not mandatory. The gift deed even if made, may or may not be registered but delivery and acceptance is a must.

Grounds for challenging the Gift Deed:

A gift deed can be challenged if any of the above mentioned legal requirements for making a gift transaction valid have not been complied with, like:

  • Consent was not free.
  • Gift deed not executed and registered as per legal provisions
  • Parties not competent to contract
  • Consideration is present.
  • Acceptance not made
  • If the gift is conditional and the condition is not fulfilled, gift deed can be revoked.

Revocation of gift deed:

  • Gift deed can be revoked by the donor for any legally valid reason as available for rescinding the contract.
  • Revocation by agreement – Donor and donee may agree at the time of making the gift that the gift can be revoked on the happening of an event which is not dependent on the will of the donor. The condition for revoking the gift should be made clear to the donee at the time of executing the gift deed. The unilateral revocation of the gift is not possible.
  • If the gift is incomplete and the title remains with the donor, the gift deed can be cancelled by the donor.

When to file suit for cancellation of gift deed:

A civil suit for cancellation of a gift deed can be filed within three years of coming to the knowledge of the fact that there exists a ground to challenge the gift deed.

A gift deed can also be cancelled by executing a cancellation deed if both parties agree.